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One Family’s 9-Month Trip Through the Loan Mod Twilight Zone

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A Lifeline Becomes a Nightmare

Denied_Joelk75_CCFlickrIt was around this time that a Wells Fargo employee told Beckage about the company’s loan modification process, which was funded by the federal HAMP program. It was the first time Beckage had heard the term “loan modification.”

“I have three small children. My day consists of school, clothes, food, cleaning,” she says. “I can’t stay up for the 11 o’clock news—I’m exhausted. And I didn’t talk to anybody about it because I’m so embarrassed.”

A bank representative told her to write and fax a letter of hardship, along with paperwork detailing the family’s finances. That was in August 2010. Nine months of paperwork nightmare ensued. The bank lost documents within hours of Beckage faxing them in, Beckage alleges. Over and over, bank employees gave her incorrect instructions for her letter of hardship, and required her to rewrite it. With each rewrite she had to send in new paycheck stubs from her husband’s job, even though his pay hadn’t changed. Paperwork would get lost or stalled as it passed between different departments of the bank, Beckage says.

Observers say such experiences are common. When it comes to re-writing existing mortgages, sometimes with lowered interest rates or principal amounts, “Now you’re asking this whole industry to do something they’ve never done before, to change the terms of a mortgage to make them affordable,” says Bruce Marks, founder and director of the Neighborhood Assistance Corporation of America, a nonprofit group that works on mortgage issues. “Well, their systems don’t work that way.”

Menke, Wells Fargo’s spokesman, responds that some of the confusion comes from the federal HAMP program, which regularly changes its rules regarding who qualifies and what is necessary to apply. The bank also needs the latest copy of all financial statements, which can make filing difficult.

“If the last three months of bank statements were already submitted for January, February and March, but then we need the latest paycheck stubs, well now we might also need the April bank statement,” Menke says. “We try to keep it as simple as possible for the borrower so we don’t force them to send in more information than necessary.”

Each time the bank lost paperwork or miscommunicated, Wells Fargo would close Beckage’s application, forcing her to start all over again. She did that three separate times until March 8, when she received a letter denying her altogether.

But even that letter contains a mistake, proving that Wells Fargo wrongly disqualified her, Beckage says. The bank overestimates the family’s monthly credit card payment by $900, despite countless statements sent to the bank showing the correct amount. That error gives Beckage a debt-to-income ratio slightly higher than what’s allowed under HAMP.

Menke declined to comment on the details of Beckage’s case, including why she was denied.

All this paperwork confusion from the same bank that responded with a certified letter of foreclosure within days of Beckage missing her second mortgage payment.

“We meet the guidelines,” Beckage says. “They don’t know what they’re doing.”

A Final Insult

Two weeks after Beckage received the denial letter from Wells Fargo, she got something else in the mail: notice that the bank wanted her to put her house up for short sale. In such a sale, the house is sold for whatever the owners can get, and repay the bank the difference between the sale price and the amount of the mortgage. While not the best outcome, short sales are considered better for homeowners than foreclosure because they wind up losing less money on the home and causing less damage to their credit scores.

But there’s only one problem: Beckage is current on her mortgage payments, which means the bank can’t legally offer the house for a short sale.

“I panicked. I am not selling my house!” Beckage says.

The letter was a mistake, Menke says. It was mailed as part of an automated process to anyone who fails to qualify for a modification. But it should not have gone to Beckage because she is current on her payments.

“We apologize for that miscommunication, and we’ve taken them out of consideration for a short sale,” Menke says.

A Nationwide Failure »

Image: Joelk75, via Flickr.com

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